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FERC Chief: California Still Faces 'Fundamental' Resource Adequacy Issues

FERC Chief: California Still Faces 'Fundamental' Resource Adequacy Issues

While it's good that California regulators recently approved resource adequacy plans for the state, including setting reserve margin requirements for utilities, the "fundamental issues" that faced California in 2001 "have not been addressed," FERC Chairman Patrick Wood told reporters last Thursday.

The California Public Utilities Commission (CPUC) last month approved the state's resource adequacy plans on an interim basis, including moving up utility requirements for increasing their reserve margins to 15%-17% by June 2006 from a previously targeted 2008 period. This completes the first of a two-phase process on establishing the state's resource adequacy rules for private-sector utilities.

"I think based on the figures that are publicly available out in California and out there, that summer of '05 is a problem as well," Wood said at a press briefing following the Commission's regular open meeting.

"I'm hearing a lot of positive things from certainly the governor, from his staff, from the PUC, from the energy commission, on the permitting and approvals, but the overhang of just the word California just scares anybody with a balance sheet over to Nevada or just some other state," Wood said.

"I think the fundamental infrastructure problem is that economy comes roaring back out there -- and it's such a big one that even just slight upticks mean you need a new power plant built here and there -- are making it very difficult to come together," he added.

Recognizing that additional work on resource adequacy requirements is still needed, the CPUC last month set the next steps that are required to ensure that a functioning regulatory program for resource adequacy requirements can be implemented during 2005.

Beginning Nov. 16, the state commission will hold a series of workshops that will constitute the centerpiece of Phase two of ensuring resource adequacy. The primary objectives for Phase two will be establishing for various Phase two policies adopted today the implementation details that each investor-owned utility needs in order to acquire resources; and establishing the reporting requirements, review processes, and compliance tools that will shape how the investor-owned utilities satisfy the Commission that they have acquired these resources.

In addition, there are other topics that need to be revisited or added to the initial resource adequacy requirements. These include local resource adequacy requirements, including identification of load pockets, generator performance in load pockets, and transmission import capabilities.

"I think some more details have to be worked out," the FERC chairman said. The CPUC "is obligated to get that done by next spring." Wood wishes that deadline was "tomorrow because I think anybody wanting to build out there is going to have to have the type of certainty that did not exist in the old world, does not exist in the current world, to go back into that state and build."

Wood thinks that "certainty the full 100%, plus the 15% reserve, is the right approach. It works in bundled markets, it works in unbundled markets and it's clearly a different approach than say is being done in PJM and New England," but he acknowledged that all of the approaches to this issue on the East Coast "have not been really perfect ones either."

Wood said that FERC will be "watching" the California resource adequacy and reserve margin process unfold. "They've asked us for input into the process. We've given them advice and suggestions and issues that we look for. Some of these contracts may come back to FERC, so as we've said in these other cases this year in Ameren [and] Cinergy....we like clean, clear, transparent solicitations that are open and they're fair."

In the case of California, the concerns are "not so much about the fairness of the procurement but because the state is kind of at the supply-demand curve point where it is, are those going to be at a reasonable price or not."

"They have to finish their market design now in order to be able to attract capital as well," noted Commissioner Nora Brownell at a later point. "What are the rules? What are the rules of the road? It's what we've been about for three years here," Wood added.

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